Little saved from lower debit fees

In a continuing big bank versus consumer battle, the lower fees that banks begin charging Saturday for debit card swipes might not in the end generate that much savings.

Congress limited the so-called swipe fees under the argument that billions of dollars would trickle back to shoppers. But banks, facing the expected industrywide loss of $6.6 billion in swipe fees, are phasing out free checking and charging more for other bank services. And while retailers continue to tout how this should help consumers, they’re strapped by stagnating sales in a very fragile economy and may struggle to pass on meaningful benefits.

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The lower fees imposed by the Federal Reserve — down from an average 44 cents to roughly 24 cents per transaction — could actually mean that a greater percentage of the price of, say, a sandwich gets swallowed up by banks.

“Ultimately, it’s the consumers that are going to be harmed,” said Ken Clayton, senior vice president and general counsel of the American Bankers Association. “Banks will have to take action to mitigate the harm, and ultimately, consumers will have to pay more.”

A recent analysis by Javelin Strategy & Research noted that the previous debit card swipe fees had “sustained” and “largely subsidized” the free checking model. The cost to banks of maintaining a checking account ranges from $60 to $350 a year.

Seven of the 10 largest banks have announced plans to eliminate free checking. And many banks “have begun and will continue to de-emphasize debit,” including the use of surcharges on more expensive transactions, the analysis noted.

“Debit rewards are gone,” said Trish Wexler, spokeswoman for the Electronic Payments Coalition. “They went the way of Charlie Sheen’s sanity.”

A new policy brief from the Federal Reserve Bank of Boston reported that if the cost of debit cards rises, shoppers could become more dependent on credit cards.

And Richard Hunt, president of the Consumer Bankers Association, noted this is a significant reversal because Congress has passed legislation to curtail credit card debt.

“What Congress has now done is they shifted people back to credit cards,” he said.

The rationale for capping debit fees was to help consumers and retailers, under the argument that the payments artificially increase prices while lining bankers’ pockets.

Senate Majority Whip Dick Durbin (D-Ill.) sponsored the amendment to the Wall Street Reform and Consumer Protection Act under which the Fed initially limited the fees to 12 cents and later raised them to 21 cents and 0.05 percent of the purchase price. That structure applies only to banks with more than $10 billion in assets.